Barrons trashes Costco
interactive.wsj.com
<< May 17, 1999
Pricey Club
Costco's wares may be cheap, but its stock isn't
By Robin Goldwyn Blumenthal
...The last time Costco was trading at a hefty price/earnings multiple -- over 40 times earnings in 1992 and 1993 -- Wall Street became unforgiving after the company reported flat earnings. The stock tumbled 71%, from 42 to 12, over 2 1/2 years. Clearly, Costco has little room to disappoint. And the company is likely to face more challenges maintaining the kind of double-digit earnings growth investors have come to expect.
Until recently, Costco had been able to do no wrong. And it still is doing a lot right, to please its fans. But even management acknowledges some cause for investor unease. Chief executive and co-founder Jim Sinegal concedes that the stock has been trading "at a fairly healthy multiple," a notion he apparently took into account when he sold 200,000 shares, or about 9% of his stake, at about $88 apiece in March, to pay off mortgage debt. The affable 63-year-old executive says that "when people come to the conclusion that perhaps interest rates are going to change or sales may slow, retail stocks tend to get hit, probably industrywide.">
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